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Brexit looms over Europe as growth and inflation remain elusive

Growth in the euro area's private sector slowed more than economists predicted in June, with firms expressing concerns about uncertainty ahead of the UK's vote on its European Union membership.

PHOTO: BLOOMBERG

[LONDON] Growth in the euro area's private sector slowed more than economists predicted in June, with firms expressing concerns about uncertainty ahead of the UK's vote on its European Union membership.

A Purchasing Managers' Index for manufacturing and services fell to 52.8 from 53.1 in May, London-based Markit Economics said on Thursday. The decline to the lowest level since January last year was driven by a slowdown in services activity. Business expectations in that sector slipped to the weakest in almost a year.

"Rising political uncertainty appears to have caused the pace of expansion to weaken slightly and business confidence about the outlook to deteriorate," said Chris Williamson, chief economist at Markit.

"June's survey data point to steady though disappointingly lackluster economic growth." Markit's survey suggests euro-area expansion slowed to around 0.3 per cent in the second quarter from 0.6 per cent in the first three months of the year.

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Companies across the 19-nation euro area are bracing for the outcome of a British referendum that remains too close to call. A decision to leave the EU could send shockwaves through the continent at a time when European Central Bank officials warn that their scope for reviving growth and inflation is limited without the help of governments.

Backlogs of work rose to their highest level in nine months, Markit said, leading firms to add staff at the fastest rate this year.

"The good news is that demand is growing at a sufficiently strong pace to sustain reasonably robust hiring, but it's not strong enough to generate inflationary pressures," Mr Williamson said.

"Firms are having to soak up higher costs, notably for fuel and labor, but cut their own selling prices amid intense competition."

The ECB has deployed unprecedented stimulus to bring inflation back in line with its goal of just under 2 per cent, including large-scale asset purchases, negative interest rates, and long-term loans to banks. Consumer prices fell an annual 0.1 per cent in May.